Taxing issues in NZ for overseas-based investors

Question from Irene updated on 15th September 2011:

I am a Kiwi living and working overseas in Australia. I purchased an apartment as a rental investment in 2010 and this came with a 2-year rental agreement in which I receive guaranteed rental payments. The agreement is due to finish in 2012 and I am seeking some advice on the next steps. I am unfamiliar with the tax requirements for individual investors and also want to know if I am liable to pay tax if the property does not get tenants at the end of the rental agreement. Would I be best to find an accountant?

Our expert Mark Withers responded:

I understand your property is in NZ. This being the case you are required to file an IR3NR non resident tax return here in NZ. This return should include all the rent and expenses associated with deriving the rent ie all your NZ derived income.

If the property makes a loss you claim it in NZ. It is unlikely though that you will derive a refund because you probably have paid no tax in NZ. In this case the loss carries forward and is available in the future to offset income down the line, perhaps even from when you return to NZ or if the property becomes profitable.

If the property makes a profit, tax is payable on it in NZ at you personal marginal rate, remember buildings can no longer be depreciated here. Because you are tax resident in Australia, you must also declare the result in your Australian return. You will be given credit for any tax already paid in NZ.

A few years back Australia repealed its foriegn loss quarantining rules which now allows you to claim losses on NZ properties against income earned in Australia. The NZ property can also be caught for Australian capital gains tax if sold at a profit. When the rental guarantee ends the costs remain deductible provided the property is available for rent. You only ever account for the actual rent you receive though. 

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

Search the Ask an Expert archive

Browse all questions in the Ask An Expert Archive »

Site by PHP Developer